only to cost-reimbursement contracts.
The cap is based on the salaries of top
corporate executives. Over the years,
Congress has repeatedly tried to rein in
the payments as the U.S. economy has
slowed and CEO compensation has sky-
rocketed. In 2011 and 2012, Sen. Charles
Grassley (R-Iowa), Sen. Barbara Boxer
(D-Calif.) and other lawmakers unsuc-
cessfully tried to reduce the cap.
More recently, bills have attempted
to make the cap equal the salary of the
president ($400,000) or the vice presi-
dent ($230,700). This time around,
private- and public-sector economic
conditions could force lasting change.
In the past decade or so, the gap
between executive and regular employ-
ee pay at contracting companies has
widened into a chasm. According to an
AFL-CIO study in April, chief executives
of the nation's largest companies earned
an average of $12.3 million in total pay
last year --- 354 times more than a typi-
cal American worker. Opponents of a
higher cap on contractor reimbursement
say those executive pay levels are pro-
hibitive for taxpayers.
This year, federal agencies have been
thumped by sequestration cuts, with
some furloughing employees to save
money and all looking to substantially
reduce costs and increase ef ciency.
"The trouble began when the reim-
bursement level was tied to executive
compensation," said Scott Amey, general
July 30, 2013 FCW.COM
25
Agencies have reimbursed contractors
for their executive salaries in one form
or another since a 1997 law enabled it
--- a practice that seems reasonable to
some and objectionable to others.
Although there is a debate over
whether government should do it at
all, perhaps the more pressing issue is
at what level the reimbursements should
be capped.
"We're near the boiling point," said
Trey Hodgkins, senior vice president of
the global public sector at TechAmerica.
The cap, based on a formula devised
by the Clinton administration's Of ce
of Federal Procurement Policy, was
$693,000 in 2010 and rose to $763,029
in 2011. According to OFPP Adminis-
trator Joe Jordan, the cap will next be
bumped to $950,000 if no legislative
action is taken.
The current controversy over federal
contractor reimbursement levels has its
roots in the Internet-fueled economy of
the late 1990s. At the time, now-retired
Sen. Joe Lieberman (I-Conn.) and others
in government were concerned that top
executive talent at private companies
immersed in the white-hot, high-tech-
driven environment of the time would
eschew government contracts in favor
of more lucrative private-sector work.
The idea was to sweeten the pot
for contractors by adding funds to
cover some or all of their executive
salaries. However, the practice applies
counsel at the Project on Government
Oversight. Amey and others who are in
favor of limiting reimbursement contend
that the payments are incongruous with
a government that is tightening its belt
and a stumbling national economy.
"The payments place a huge burden
on taxpayers. We need reform," Amey
said. "Why does CEO pay apply to a
defense contractor when there are hir-
ing freezes and pay freezes at govern-
ment agencies?"
Amey said that, ideally, he'd like a
new reimbursement cap set at $200,000,
with individual waivers led if more
money is needed to keep a top-level
executive on the job.
Groups that represent federal con-
tractors argue that the situation is more
nuanced. They say they understand the
pressure to cut costs but also see indus-
try continually drawing valuable execu-
tives away from government contract
work. They favor realistic compensation
to keep talented contractor executives
engaged, especially in some critical
markets, but say they are open to other
solutions.
However, if reimbursement is unre-
alistically limited and executives seek
more lucrative private-sector work,
Hodgkins said, "we stand to lose skills
and erode our ability to retain top per-
formers in key areas like cybersecurity
and software design."
One way to address ballooning exec-
Multiple proposals to reshape contrac-
tor reimbursement payments have
been introduced in Congress in the
past few months. However, legislation
to reform the cap stalled last year.
In the past month, Of ce of Federal
Procurement Policy Administrator Joe
Jordan recommended tying the cap to
the president s $400,000 annual salary
and extending it beyond government
contractors.
In June, the Commonsense Contrac-
tor Compensation Act was introduced
by Rep. Paul Tonko (D-N.Y.) and Sens.
Barbara Boxer (D-Calif.), Charles Grass-
ley (R-Iowa) and Joe Manchin (D-W.
Va.). The legislation would cap the salary
reimbursement for all government con-
tractors at the vice president s $230,700
salary and extend the cap to all defense
and civilian contractor employees.
--- Mark Rockwell